CA Kamal Garg
1. As per the extant guidelines, Indian companies in the infrastructure sector, where “infrastructure” is as defined under the extant guidelines on External Commercial Borrowings (ECB), have been allowed to import capital goods by availing of short term credit (including buyers’/suppliers’ credit) in the nature of ‘bridge finance’, under the approval route, subject to the following conditions:-
(i) the bridge finance shall be replaced with a long term ECB;
(ii) the long term ECB shall comply with all the extant ECB norms; and
(iii) prior approval shall be sought from the Reserve Bank for replacing the bridge finance with a long term ECB.
2. On a review, it has been decided by RBI (Vide A.P. (DIR SERIES 2012-13) CIRCULAR NO. 27, DATED 11-9-2012), to allow refinancing of such bridge finance (if in the nature of buyers’/suppliers’ credit) availed of, with an ECB under the automatic route subject to the following conditions:-
(i) the buyers’/suppliers’ credit is refinanced through an ECB before the maximum permissible period of trade credit;
(ii) the AD evidences the import of capital goods by verifying the Bill of Entry;
(iii) the buyers’/suppliers’ credit availed of is compliant with the extant guidelines on trade credit and the goods imported conform to the DGFT policy on imports; and (iv) the proposed ECB is compliant with all the other extant guidelines relating to availment of ECB.
3. The borrowers will, therefore, approach the Reserve Bank under the approval route only at the time of availing of bridge finance which will be examined subject to conditions mentioned in para 1(i) and (ii).
4. The designated AD – Category I bank shall monitor the end-use of funds and banks in India will not be permitted to provide any form of guarantees for the ECB. All other conditions of ECB, such as eligible borrower, recognized lender, all- in-cost, average maturity, end-use, maximum permissible ECB per financial year under the automatic route, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged and should be complied with.
2. TRADE CREDITS FOR IMPORT INTO INDIA
1. As per the extant guidelines, for import of capital goods as classified by DGFT, AD banks may approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and less than three years (from the date of shipment). No roll over/extension is permitted beyond the permissible period. AD banks are also permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU)/Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution, up to USD 20 million per transaction for a period up to three years for import of capital goods, subject to prudential guidelines issued by the Reserve Bank from time to time. The period of such Letters of credit/guarantees/LoU/LoC has to be co-terminus with the period of credit, reckoned from the date of shipment. AD banks shall not, however, approve trade credit exceeding USD 20 million per import transaction.
2. On a review, it has been decided by RBI (Vide CIRCULAR NO. A.P. (DIR SERIES 2012-13) CIRCULAR NO. 28, DATED 11-9-2012), to allow companies in the infrastructure sector, where “infrastructure” is as defined under the extant guidelines on External Commercial Borrowings (ECB) to avail of trade credit up to a maximum period of five years for import of capital goods as classified by DGFT subject to the following conditions: –
(i) the trade credit must be abinitio contracted for a period not less than fifteen months and should not be in the nature of short-term roll overs; and
(ii) AD banks are not permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU)/Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the extended period beyond three years.
3. The all-in-cost ceilings of trade credit will be as under:
|Maturity period||All-in-cost ceilings over 6 months LIBOR*|
|Up to one year|| |
350 basis points
|More than one year and up to three years|
|More than three years and up to five years|
* for the respective currency of credit or applicable benchmark
The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any.
4. All other aspects of Trade Credit policy will remain unchanged and should be complied with. The amended trade credit policy will come into force with immediate effect and is subject to review based on the experience gained in this regard.
Compiled by FCA Kamal Garg. He is a Fellow Member of ICAI. He is engaged in providing Auditing, IFRS, FEMA, XBRL and Valuation Services. For any queries or suggestions, he can be approached at firstname.lastname@example.org